The 25th Annual Putnam County Spelling Bee has been a phenomenon on Broadway, and it's easy to see why: it's a bright, appealing show in the best traditions of American musicals, with enough satirical bite to avoid the saccharine. Think Little Shop of Horrors, with its light comic digs at American materialism and off-beat love story, replace the gothic elements with a parody of contemporary small town America, and you have the tenor about right.

It takes that most American of inventions, the competitive spelling bee, and wrings surprising dramatic mileage from this simple idea. The spelling bee is, of course, already a performance, where a hapless child stands in front of an audience and tries to spell increasingly obscure words. When they get a word wrong, they're eliminated from competition, and the winner is the last one standing. It is, in many ways, a precursor of the Big Brother/American Idol "reality" shows, and with the same ruthless subtext of predatory competitiveness.And, as The 25th Annual Putnam County Spelling Bee or, indeed, Big Brother, demonstrates, any situation in which contestants are placed under pressure opens rich possibilities for emotional revelation. The successive rounds of the spelling bee include dramatisations of the children's inner thoughts as they stand in front of the microphone, groping for some clue on how to spell a word like "xanthosis" or "appoggiatura". These vignettes reveal the complexities of their lives, and in the process offer up a breezy portrait of the neuroticisms of middle class America.

Logainne Schwarzandgrubeniere (Christen O'Leary), for instance, has to be a poster girl for her two gay fathers, who are anxious to show what a successful child they have raised. Leaf Coneybeare (Tim Wright) is from a large home-schooled family, and feels outshone by his bright siblings. Marcy Park (Natalie Mendoza) is a prodigy who longs for the liberation of failing, and Olive Ostrovsky (Natalie O'Donnell) misses her mother, who has gone to an ashram in India for nine months. And then there's William Barfee (Magda Szubanski), obnoxious, arrogant, clever, asocial and lonely, and the former spelling bee champion Chip Tolentino (David Campbell), who is tormented by the travails of adolescent lust.

The spelling bee itself is run by Ms Peretti (Marina Prior), a former champ herself who scatters seductive charm over any male within smiling distance, and Vice Principle Panch (Tyler Coppin), who is as asocial as some of his pupils. And the whole is watched over by the ironic eye of the streetwise Mitch Mahoney (Bert Labonte), who is doing community service for unknown transgressions as the "comfort counsellor". His job is to console the losers although, as he says, he'd like to see what would happen if they had to cope with something really bad.

To be a loser is almost synonymous with sin in a society where Donald Trump is the model for ultimate success. The irony is, of course, that the children who win are the misfits and the socially inept, "losers" in almost every other sense.

Simon Phillips has put together a classy production with an excellent cast, and it bounces along entertainingly from the first number, neither insulting your intelligence nor boring you. The set is a basketball court-cum-school hall, with a curtained stage at the back, behind which sits the band. The stage is used inventively and flexibly: the playing space includes the auditorium, for of course we are the fictional audience of the spelling bee as much as the actual audience of the musical. This complicity is underlined by a bit of audience participation: four contestants are drawn from spectators. They compete and are eliminated (in one case, with a particularly good speller, with some difficulty), comforted and sent back "home".

The band is tight, the music catchy, the singing (especially from Marina Prior) glorious. And the performances are essays in comic deftness: just this side of caricature, with enough depth to generate moments of real feeling. In short, this is a show with bags of charm, and an undoubted winner for the MTC.

Is it churlish of me to cavil at this point? No doubt...but let me be a churl anyway. It's my job. What is the MTC - the largest subsidised theatre company in the southern hemisphere - doing putting on what is, by any other name, a commercial musical? Surely this is the kind of decision that has actual commercial producers gnashing their teeth? The fact that I know a lot of the answers - looming large among them the parlous funding for even the large state companies - doesn't mean that the questions go away. Primary among them is, why have subsidised theatre at all, if it is only to produce commercial shows?

I'd be interested to know how much, if any, government subsidy was allocated to this production. If MTC can do a show in its season without the need for subsidy, that means more government funding is available for more challenging works or commissioning. Seems fair to me - although obviously it's a balancing act, and the 'commercial' shows it programmes still need to be creative and interesting theatre. Having said that, do you really think a commercial producer would have taken a risk on 'Spelling Bee' or 'Urinetown'?

I hope this isn't prejudice just because it's musical theatre. Having said that, when was the last time MTC programmed an Australian musical?

As I recall, the MTC's subsidy amounts to about 13 per cent. To compare: US theatre has very little state subsidy at all (it doesn't exist in the same way as it does here), so I am 99 per cent sure that Spelling Bee in the US is a wholly commercial enterprise - though I might be wrong there. It seems to be making a packet at the moment, all the same. In France, on the other hand, theatre subsidies for major state companies is around 80 per cent, and there is a very clear differentiation between what they call "boulevard theatre" (commercial theatre, which produces hits like Art) and the more serious theatres like Mnouchkine's Theatre de Soleil. The MTC still counts as a subsidised theatre, though; but like all the state companies needs hits to keep afloat (look at the crisis the STC was in a few years ago). I am not entirely unsympathetic with their dilemma.

As for my attitude to music theatre - watch this space. Further thoughts coming up.

"so I am 99 per cent sure that Spelling Bee in the US is a wholly commercial enterprise"

Like many small and medium size musicals, Spelling Bee was developed in the subsidized theatre world, first at Barrington Stage in Massachusetts and then at Second Stage in New York. Critical and audience success at Second Stage led to a commercial producer picking it up for a Broadway run. Because of its modest scale, it managed to recoup the $3.5 million investment in the Broadway transfer relatively quickly and there are now commercial companies opening in Chicago and San Francisco. I'm not sure it had proven its viability at the time MTC picked it up.

While it's true that most Broadway musicals are commercial enterprises, many do originate in the not-for-profit (ie subsidized) theatre world, either being wholly produced by the theatre company or produced with enhancement money from a commercial producer. Of the four Tony nominees last year:- Light in the Piazza was not-for-profit having been developed successively by Seattle Rep, the Goodman and ultimately Lincoln Center. - Dirty Rotten Scoundrels was commercially originated but developed in conjunction with the Old Globe in San Diego- Spelling Bee (see above)- Spamalot was wholly commercial.

Broadway is brash and makes a lot of noise so it's easy to forget that the vast majority of theatre in the US is not-for-profit, just as it is the world over. Most of the companies earn 50% to 60% of their budget at the box office (a few more, many less) and rely on donations from individuals, foundations, corporations and government for the balance. The US Federal Government isn't very generous with funding but some state and local governments provide good support to their regional theatre companies, at least at the level of that provided to MTC. MTC relies heavily on corporate, foundation and individual donors as well and that's a trend even in the UK with their lottery funding. It's only in some European countries that companies can get by on arts council funding alone and be insulated from the twin pressures of the box office and fundraising. That insularity means they can take risks but it also leads to some indulgent and thoroughly boring theatre.

Subscribers and funders will indulge some artistic risk but they don't like it when there are too many critical failures in a season so the risky works must always be balanced by more surefire productions. I'm sure Simon Phillips would love nothing more than to stage a good Australian musical but they are hellishly difficult to create and to finance. For every one that might be worth a full production there are 10 that don't get beyond the reading or workshop stage.

I guess not-for-profit in the US and subsidised theatre here (which is barely subsidised by European standards) face many parallel problems. However, if it's such a struggle even to put on audience-friendly work this this, then woe betide anything that's attempting to be at all innovative, serious or challenging - Of course, like any branch of the arts, serious theatre has its share of pretension, but to marginalise it completely is to impoverish the artform. I personally would be aghast to think that the only future for theatre was the musical...